STRATEGIC CONTROL OF GROWTH IN A SYSTEM OF CITIES

This paper provides an analysis of the supply-restriction model of growth controls. Growth controls in such a model harm consumers while enriching landowners, and they will only be adopted if landowners have political power. In the model, this power is manifested in the city government's use of a social welfare that takes both landlord and consumer welfare into account. Since cities cannot be small if the supply restriction inherent in growth controls is to have an impact, strategic interactions must be considered in the analysis of city choices. A general model is presented, and an extended example based on Leontief preferences is then considered. Comparative-static analysis of Nash equilibria in the Leontief case shows that perturbations of preferences or other characteristics of a single city can have important spillover effects that alter the choices of all cities in the region.